A single homeowner in England with an average priced home and a moderate retirement pot is liable for a hefty inheritance tax bill from 2027 thanks to changes introduced by Chancellor Rachel Reeves in the Budget, says Quilter.
New calculations from the wealth manager show a single homeowner with a home worth £308,782 and moderate retirement savings of £459,000 will be liable to pay a £107,000 inheritance tax bill from 2027.
It follows an announcement in the Autumn Budget of a further freeze to the nil-rate band at £325,000 and the residence nil-rate band at £175,000 until 2030.
As property prices continue to rise and other assets increase, more estates will be liable for inheritance tax. Additionally, from 2027, pensions will also be included in inheritance tax calculations, increasing tax liabilities for many estates.
Quilter said that a single person in London with an average priced home of £525,586 and the same amount in their pension will face an inheritance tax bill of £194,000 in 2027 compared to £10,000 today.
Following the rule changes, estates in Northern Ireland, Scotland and Wales that previously would have paid no inheritance tax due to the lower average house prices in the region, will now also face bills of £59,821, £62,818 and £70,300 respectively if they have built up moderate retirement savings which are unused.
With house prices expected to increase across the UK by 4% in 2025, these figures are likely to rise further, Quilter warned.
Roddy Munro, tax and pensions specialist at Quilter, said: “The double whammy of a frozen nil rate band and the inclusion of pensions in your estate means many more people with average-priced properties and modest pension wealth will become liable for a tax originally intended for the very wealthy. These inflated estates along with the variance in house prices across the UK means IHT becomes even more of a post code lottery.
“Pensions are primarily a retirement vehicle, meant to be depleted over time. Ideally, you would pass away just as your pension pot empties, but this is rarely the case. The new regime means those who saved significant sums into their pensions, assuming they would be free of inheritance tax, now face new challenges. Similarly, those who sadly pass away early on in their retirement will have less to pass on to their beneficiaries.”
Munro urged people to take advantage of actions like early gifting to reduce their taxable estate as well as more flexible options such as onshore bonds wrapped in trust.
He added: “By placing the bond in a trust, you can remove its value from your estate, potentially lowering your inheritance tax bill if you survive seven years after the transfer. Additionally, trusts offer control and flexibility over how and when assets are distributed to beneficiaries, ensuring that your family is supported according to your wishes.”
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